InFin Series – Deductions under section 80C in specified modes of Investments PART 2

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In the previous series, we discussed one of the most important and popular 80C deduction, i.e. deduction towards life insurance premium. In this series, we would be discussing about the following investment modes:

  1. Premium paid to effect and keep in force a contract for a deferred annuity on the life of the taxpayer and/or his or her spouse or child (minor or adult), provided such contract does not contain any provision for the exercise by the insured of an option to receive cash payments in lieu of the payment of the annuity.
  • Any sums paid by an assessee during the previous year to effect or to keep in force a contract for a deferred annuity on the life of himself, his spouse or his child (minor or adult) will qualify for deduction under section 80C.
  • There is no monetary limit, but such a contract should not contain any provision under which the insured person has an option to receive cash payment in lieu of the deferred annuity.
  • It is pertinent to note here that a contract for a deferred annuity need not necessarily be with an insurance company. It follows therefore that such a contract can be entered into with any person.
  1. Amount deducted by or on behalf of the Government from the salary of a Government employee for securing a deferred annuity or making provisions for his spouse or children. The excess, if any, over one-fifth of the salary is to be ignored.
  • If any sum is deducted from the salary of a Government servant by Government in accordance with the conditions of his service, for the purpose of securing to him a deferred annuity or making a provision for his wife or children, the sums so deducted will qualify for deduction under section 80C up to a maximum of one-fifth of the salary of the employee.
  1. Contribution to Provident Funds namely:
    1. Contributions to any provident fund to which the Provident Funds Act, 1925 applies.
    2. Contributions made to any Provident Fund set up by the Central Government and notified in his behalf (i.e., the Public Provident Fund established under the Public Provident Fund Scheme, 1968). Such contribution can be made in the name of any persons mentioned in (1) above. The maximum limit for deposit in PPF is `1,50,000 in a year.
    3. Contribution by an employee to a recognised provident fund.
  • The ‘contributions’ referred to will be only the ‘subscriptions’ and not repayment of loans, if any, made to the funds.
  • Contributions to any provident fund to which the Provident Fund Act, 1925 applies: Such contributions will qualify in full.
  • Contributions to any recognised fund, including any fund established under the Employees’ Provident Fund Act: Such contributions made by an employee will qualify in full, without any limit.
  • Contributions to the Public Provident Fund (PPF): Contributions will qualify for deduction in full, without any limit. [Notification No. S.O. 1559(E), dated 3-11-2005].
    1. The Public Provident Fund is a scheme open to all individuals, and an account under this scheme can be opened in any branch of the State Bank of India, or in any Head Post Office, or in selected branches of certain nationalized banks.
    2. The scheme, provides for a maximum contribution of Rs. 1,50,000 by any individual in a single year.
    3. An investor can open accounts in name of spouse or children (major or minor) or himself. An individual may, on his own behalf or on behalf of a minor, of whom he is the guardian, subscribe to the Public Provident Fund; either father or mother can open a PPF account on behalf of his/her minor child but not both. – Circular DGBA.CDD.H-7530/15.02.001/2009-10, dated 29-3-2010.
    4. When a deposit is made in the PPF account by means of a local cheque or demand draft by the subscriber, the date of realization of the amount will be the date of deposit.
    5. Public Provident Fund gives guaranteed interest that is fixed by the Finance Ministry for every financial year. The current interest from the PPF for FY2016-17 is set at 8.1% that is compounded annually.
    6. The Public Provident Fund has a tenure of 15 years, after which the withdrawals are tax-free. While the PPF doesn’t allow premature withdrawals, the account holder can take loans against the corpus in their PPF account.
    7. Tax bracket for PPF is EEE (i.e. Exempt, Exempt, Exempt). So, contribution is exempted under 80C, Interest earned is tax exempted and withdrawal is also tax exempted.
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Let’s take a halt and understand the deductions with an example here.

An individual assessee, resident in India, has made the following investments during previous year 2016-17:

ParticularsAmount (in ₹)
Contribution to the public provident fund150,000
Insurance premium paid on the life of the spouse (policy taken on 1.4.2014)
(Assured value 2,00,000)
25,000

What is the deduction allowable under section 80C for A.Y.2017-18?

Computation of deduction allowable under section 80C for AY 2017-18

ParticularsAmount (in ₹)
Deposit in public provident fund150,000
Insurance premium paid on the life of the spouse (Maximum 10% of the assured value ` 2,00,000, as the policy is taken after 31.3.2012)20,000
Total170,000
However, the maximum permissible deduction u/s 80C is restricted to150,000

Note: As per section 80CCE, the aggregate deduction under section 80C, 80CCC and 80CCD(1) cannot exceed INR 1,50,000.

  1. Contribution by an employee to an approved superannuation fund:
    • A superannuation fund is a retirement fund offered by your employer. An approved superannuation fund is a fund that is approved by the Commissioner of Income Tax. The rules pertaining to this can be found in Part B of the Fourth Schedule of the Income Tax Act. Superannuation funds are approved by the Income Tax Commissioner based on whether or not they are meeting certain conditions.
    • Contributions made by an employee to any approved superannuation fund will qualify for deduction under section 80C in full.
    • Under Section 10(13), payment of superannuation amount is not taxable under the following circumstances:
      1. If the payment is made after the death of the employee to their heirs;
      2. If the payment is made as refund of contributions on the death of the employee
      3. If the payment is made to an employee as an annuity plan after their retirement (voluntarily or due to age limit)
      4. If the payment is made to an employee who is incapacitated by a disability or illness or other reasons
      5. Contributions made before April 1, 1962 are exempt from taxation.
  2. Contribution towards Sukanya Samridhi Account:
  • Subscription to any such security of the Central Government or any such deposit scheme as the Central Government as may notify in the Official Gazette. Accordingly, Sukanya Samridhi Scheme has been notified to provide that any sum paid or deposited during the previous year in the said Scheme, by an individual in the name of –
    • the individual himself or herself;
    • any girl child of the individual; or
    • any girl child for whom such individual is the legal guardian
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would be eligible for deduction under section 80C

  • This is a special account that was announced by the government in early 2015. It allows parents to open an account for a girl child and deposit money in it, up to Rs. 1.5 lakhs per annum, and earn an interest of 9.1% per annum on it.
  • Some of the important salient features of this scheme is given below:
  • This account can be opened for two children and can be extended to a third in case there are twins involved.
  • Minimum deposit amount for this account is INR 1,000 and maximum is INR 150,000.
  • For this scheme, depositor is an individual who, on behalf of a minor girl child, of whom he or she is the guardian and deposits amount in account opened under this scheme.
  • Guardian under this scheme means:
    • Either father or mother; and
    • Where neither parent is alive or is incapable of acting, a person entitled under the law for the time being in force to have the care of the property of the minor
    • Under the revised rules, Guardian includes Legal Guardian too, which means parents of adopted child
  • Depositor cannot open multiple or more than one account in the name of a girl child. It has also been clarified that more than one account cannot be opened for a girl child even if depositor are different.
  • Interest earned under this scheme as well as maturity amount is exempt from income tax